Blockbuster Testing Used Disc Trade

Blockbuster Video is “looking at and actively testing DVD trading” as an avenue for growth at the No. 1 video rental chain, its chairman and CEO John Antioco told investors today.

“We are looking at and actively testing DVD trading, which as you may be aware is a very profitable dynamic in the game world as it relates to DVD,” Antioco told investors at the Salomon Smith Barney Leisure Conference.

“We have a very profitable and growing business in previously viewed product that should become even more popular with DVD as consumers realize that a used disc is as good as a new one, there is no degradation of quality over time,” he said. “Used DVDs are a big part of our business. Essentially it's kind of like the last rental. We sell twice as many used discs as we do new. Over the next year that will probably change and a growing percentage of our overall disc sales will be new.”

Big Blue's foray into testing trading in used discs seems to validate a Video Buyers Group test, which also found that used discs can add to a rentailer's bottom line.

Future rental growth lies in DVD and games, Antioco said, noting Blockbuster bought a game chain in the United Kingdom last year.

While the chain does not have plans to match its chief competitor, Hollywood Video, with game stores-within-stores, “we have a ready-made model in Game Station that is very similar to Game Stop in the U.S. and we are prepared to put those in stores if we think the investment justifies it.”< br>Antioco again attributed a falloff in rentals during the 2002 holiday season to especially collectible titles like Spider-Man and Monsters, Inc., and said titles released this quarter have less ownership appeal, citing Signs, My Big Fat Greek Wedding, xXx, 8 Mile, Sweet Home Alabama and The Bourne Identity.“People would likely rather rent those, watch them once and return them to Blockbuster, hopefully on time,” Antioco said. “The fourth quarter was a combination of factors including highly collectible titles…the first quarter is basically a reversal of that and back to what we consider a more normal mix of titles.”

But those titles seem to be big sellers as well. According to Nielsen VideoScan data, four of the titles Antioco named as were among the top five DVD sellers in the week ended Feb. 8 and two were in the top five VHS sellers in the same week.

Studios will continue to flood the market with ‘A' titles during the holiday season, but the chain is in a better position now to respond to that.

“Clearly the studios will release their best sellthrough product to try to take advantage of holiday purchases,” he said. “What we don't think will happen to the extent it did this year is the extent of the below-cost selling that went on. We know a number of very large retailers were not particularly happy with their profit margin on video and it did not accomplish some of the traffic goals of mass merchants.”

Blockbuster is still valuable to parent company Viacom, Antioco said, despite reports that Viacom board members are discussing a possible spinoff.

“They like the business and they like the free cash of the business,” he said. “I don't think Viacom is in any rush to do anything one way or the other.”